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Shifting the Dial: 5 year productivity review

Foreword

This is the first document of its kind for the Productivity Commission — a look out across the landscape of factors and influences that may affect Australia’s economic performance over the medium term, in order to offer advice on where our priorities should lie if we are to enhance national welfare.

And it’s a process to be repeated every 5 years, similar to the Australian Government’s Intergenerational Report.

The Terms of Reference for this work is couched in terms that emphasise Australia’s recent and prospective productivity performance. But they ultimately arrive at the reason why we are — or should be — so interested in this subject: the wellbeing of Australians is substantially and inextricably dependent on persistent growth in productivity.

When productivity leaps in Australia, all incomes eventually rise. And particularly where effective redistribution and social support policies are in place.

Productivity improvement also offers benefits outside the scope of economic performance measures. People’s average life expectancy at birth has increased by nearly 30 years from Australia’s federation in 1901 — an outcome of innovation and investment in public health, education and research, and the introduction of new technologies to replace outdated (and some quite dangerous) old technologies.

Thus productivity is not, as some would have it, about extracting more sweat from the brow of an already hard-working Australian. It is most of all about:

  • not standing in the way of better investment in workplaces
  • not opposing the research and trialling of new ideas
  • not defending outmoded regulation that prevents consumers and businesses obtaining access to better services.

We can make significant gains just by recognising the case for change and embracing it.

Nor is average productivity growth good enough. In the period between now and the next of these Reports in 2022, income growth in Australia is likely to be about half of historical levels.

The offset to the factors behind this — covered in this Report in its first chapter — can only be higher productivity. Nothing else is capable of making a difference.

It is yet far from being an offset to other influences, and in the absence of a shift in economic approach, it may well add to the general slowdown. We estimate that on a business as usual basis, productivity growth in Australia is more likely to fall than rise over the medium term.

It could be otherwise. For the generation of people born in 2017, if long run productivity growth lifts sustainably by 0.5 per cent a year, over their lifetime Australian production per person would be about six times its current size, or about 50 per cent bigger than if productivity remains about average.

Beyond simply not doing harm to ourselves economically, there are also significant opportunities in prospect. And they lie in areas that many would not traditionally associate with productivity: health, education, cities and confidence in institutions. These are central to this Report.

Health and education are expanding their share of the Australian economy. Moreover, they are directly under the control of governments. Delivering them much more efficiently, and with a serious focus on what improves outcomes for the users of these services, will deliver bigger benefits than even traditional industry reform. Not that it is desirable to do just the one. Doing both is the key to outperformance.

This Report is not a long list of ‘must do’ advice. It is a short list of thematic directions covering actions where the greatest scope for deliverable gains in the medium term lies.

Governments and commentators should be very wary of the seductive claim that something is well under way already in the areas to which we devote most attention. The Commission’s analysis, seen in detail in the Supporting Papers, is that the headline is often not supported by reality; or has not yet achieved the cooperation of all the necessary participants.

Thus cooperation is itself a key theme of this Report. We propose a Joint Reform Agenda, as a commitment that restores credibility in government leadership on issues where shared responsibilities are common. We were told by countless participants that governments themselves — their structures, relationships, incentives and capabilities — are today the key impediment to (but could be the crucial catalyst for) essential reform. We propose that the choice is made in favour of being the catalyst.

Such an agenda would ultimately need to be endorsed by a renewed COAG. But it should first be developed from this foundation by further negotiation between jurisdictions, before being finally submitted to COAG. A shared agenda should be allowed to arise. This is not intended to be a take it or leave it style Report.

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